What is Arbitrum (ARB)?

KEYTAKEAWAYS

TABLE OF CONTENTS

• KEY TAKEAWAYS
• WHAT IS ARBITRUM (ARB)?
• ARBITRUM’S OPERATION PRINCIPLE AND ADVANTAGES
• USES OF THE ARB
• ARB PROSPECTS AND SUMMARY
• FAQ
• DISCLAIMER
• WRITER’S INTRO

CONTENT

ARB token, based on Optimistic Rollup, enhances Ethereum’s scalability and lowers costs, serving as a governance token for Arbitrum’s DAO. Learn its uses and future prospects.

WHAT IS ARBITRUM (ARB)?

Arbitrum is a Layer 2 scaling solution for Ethereum based on Optimistic Rollup technology. It was created by Offchain Labs, a team of renowned blockchain researchers and software engineers, in 2021 to address Ethereum’s congestion and high gas fee issues.

In simple terms, Arbitrum acts as a supplementary chain to Ethereum. Its operational principle involves bundling numerous transactions, settling them on the Arbitrum chain, and then submitting the transaction data to the Ethereum mainnet.

Since Offchain Labs launched Arbitrum in August 2021, many have anticipated the release of Arbitrum‘s token. On March 16, 2023, the Arbitrum Foundation and Offchain Labs officially announced the airdrop of the Arbitrum governance token, $ARB, which commenced on March 23, 2023. This marked a significant step towards full decentralization of Arbitrum.

Unlike other public chain tokens such as BNB and MATIC, which are used to pay for on-chain transaction fees (gas fees), ARB is not used for transaction fee payments (since it is built on Ethereum, ETH is still used for gas fees). Instead, ARB serves as the governance token for the Arbitrum public chain, facilitating the development of Arbitrum into a DAO organization, and advancing Arbitrum through DAO governance.

>>> More to read : What Is Ethereum?

ARBITRUM’S OPERATION PRINCIPLE AND ADVANTAGES

Arbitrum utilizes a technology called Optimistic Rollup, which aggregates off-chain transactions into collective bundles to enhance processing speed, while recording the transaction data on the main chain. Similar to zkRollup, Arbitrum transfers computational tasks to Layer 2 and then packages the results to transmit back to the main chain, thereby improving efficiency. The key difference is that Arbitrum processes transactions optimistically, assuming the results are correct without requiring any verification. In contrast, zkRollup verifies transactions using Zero-Knowledge Proof technology and employs fraud-proof mechanisms to prevent fraudulent activities.

• Advantages of Arbitrum Compared to Competitors

In the competitive Layer 2 space, Arbitrum stands out with several significant advantages beyond its first-mover status:

1. EVM Equivalence: Arbitrum maintains Ethereum Virtual Machine (EVM) equivalence, which lowers development barriers and accelerates the maturation of numerous applications, forming a robust ecosystem. This has led to a higher number of transactions and active addresses compared to its competitors, with a growing trend and increasing Total Value Locked (TVL).

2. User Experience: Due to its EVM compatibility, Arbitrum can be directly used with Ethereum wallets like MetaMask, offering a more attractive user experience compared to many non-compatible competitors.

3. Rapid Growth: In less than two years, Arbitrum has quickly risen to become one of the most popular Layer 2 blockchains on Ethereum.

• Technical Architecture

Arbitrum‘s technical architecture comprises four crucial roles: Validators, Keys, Virtual Machines, and Managers.

• Validators: Responsible for verifying the correctness of transactions.
• Keys: Ensure data security among different users.
• Virtual Machines: Handle the computational tasks of executing smart contracts.
• Managers: Oversee the operation of the entire system.

For a deeper understanding of Arbitrum’s operational principles, you can refer to the official documentation released by Offchain Labs.

USES OF THE ARB

The ARB token is the governance and incentive token for the Arbitrum network. Its primary uses include:

1. Rewarding Validator Nodes:

Validators participating in the Arbitrum network receive ARB rewards as compensation for their contributions. Validators need to stake a certain amount of ARB on the Arbitrum network to incentivize maintaining network security and reliability. If a validator violates network rules or experiences a malfunction, they will lose a portion of their stake, encouraging adherence to network rules and stable node operation.

2. Participating in Network Governance:

ARB holders can participate in the governance of the Arbitrum ecosystem. On March 23, alongside the token airdrop, the Arbitrum DAO (Decentralized Autonomous Organization) was established. DAO members holding ARB can engage in governance activities, such as voting on significant protocol changes and proposals, or providing rewards to users to encourage participation in the ecosystem’s development and growth.

• Important Note

ARB cannot be used to pay for transaction gas fees on the Arbitrum network. ARB is solely a governance token and is not used for any transaction fees on the Arbitrum chain. Currently, users interacting on the Arbitrum chain still pay gas fees in ETH.

ARB PROSPECTS AND SUMMARY

• Key Features of ARB Token

1. Scalability: 

The ARB token leverages a technology called Optimistic Rollup, which aggregates a large number of transactions into a single block, thereby increasing the throughput of the Ethereum network. This allows users to complete transactions more quickly without being affected by network congestion.

2. Low Cost: 

By using Optimistic Rollup technology, the ARB token significantly reduces transaction fees. Compared to other cryptocurrencies, ARB offers more economical transaction costs, which is an attractive feature for most investors.

3. Security: 

The ARB token relies on Ethereum’s security while introducing additional security measures to protect users’ assets. This makes ARB a relatively secure and reliable investment option.

• Prospects of ARB Token

As an emerging cryptocurrency, the ARB token has significant potential for future development. Here are some aspects of its prospects:

1. Technological Innovation:

 The Optimistic Rollup technology of ARB can provide better scalability and efficiency for the Ethereum network. This will attract more users and developers, further driving the development of ARB.

2. Market Demand:

With the continuous development of the cryptocurrency market, investors are increasingly demanding efficient and low-cost transaction methods. ARB meets this demand, thus possessing broad application prospects in the market.

3. Partnerships:

 The core team of ARB is actively establishing partnerships with other blockchain projects to jointly advance blockchain technology. These collaborations will bring more opportunities and resources to ARB, helping to enhance its market position.

• Summary

The ARB token, based on blockchain technology, features scalability, low cost, and security. It is poised for a promising future through technological innovation, market demand, and partnerships. Investors might consider adding ARB to their portfolios for potential returns. However, it is important to note that the cryptocurrency market is highly risky, and investors should make informed decisions based on their circumstances and risk tolerance.

FAQ

• What is Arbitrum (ARB)?

Arbitrum is a Layer 2 scaling solution for Ethereum using Optimistic Rollup technology. It enhances Ethereum’s scalability and reduces transaction fees, created by Offchain Labs in 2021.

• How does Arbitrum (ARB) work?

Arbitrum bundles transactions off-chain, processes them, and submits the data to Ethereum. It optimistically assumes transactions are valid, boosting efficiency without requiring immediate verification.

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